Getting better all the time

"Ours is the most dynamic era in human history. The benefits of four centuries of technological and organizational change are at last reaching a previously excluded global majority. This transformation will create large-scale opportunities in richer counties like the United States just as it has in poorer countries now in the ascent.

"Overcome outdated narratives of fear and grasp the powerful momentum of progress in our lifetimes. The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface—to the true interpretation of the trend of things."

— John Maynard Keynes, The Economic Possibilities of our Grandchildren (Quoted in Philip Auerswald's The Coming Prosperity)

Sociologists doing economics

A very odd paper has just been published by a couple of sociologists concering the outcome of the various different privatisation regijmes at the end of communism.

In their new study, Lawrence King, a Reader in sociology at the University of Cambridge, David Stuckler, a Lecturer in sociology at the University of Cambridge, and Patrick Hamm, a doctoral candidate in sociology at Harvard University, test for the first time the idea that implementing mass privatization was linked to worsening economic outcomes, both for individual firms, and entire economies. The more faithfully countries adopted the policy, the more they endured economic crime, corruption, and economic failure. This happened, the study argues, because the policy itself undermined the state's functioning and exposed swathes of the economy to corruption.

When you read the full paper (sorry, not online) you find it peppered with references to "neoliberal", something which in sociological circles seems akin to a swearword and they're not that much keener on neoclassical economics either.

Their basic argument is that mass privatisation destroyed the ability of the government to intervene in the economy. The absence of such intervention made the slump worse and reduced future growth. I'm sure this makes sense to those who sneer at neoliberalism but I'm afraid that it makes absolutely no sense at all to someone who actually lived and worked in the private sector of one of those post Communist states. For the actual experience of all of us was that intervention by the government into the economy was positively malevolent, not just too little of something helpful.

The evidential link that they find and use to support their thesis is that the CEE (ie, Central European) states did best, then the FSU ones, then dragging up the rear was Russia. And it is true that the mass privatisations followed roughly that order. However, there's a much simpler explanation than the existence of the mass privatisations to explain that connection.

Quite simply, that the places which had been communist for longer did worse, those with even less remnant of the pre-communist bourgeois and capitalist order did the worst. The CEE countries at least had a memory of what things were like pre socialist idiocy, their economies not really being sovietised until well into the 50s or even early 60s. Russia itself had at best a patchy although fast growing relationship with capitalism pre-1914. The FSU results are a bit confusing as they include the Baltics which are more like the CEEs and then the 'Stans which are really still feudal economies. Given that the results are about how much the economies shrank and then expanded, not about absolute levels of wealth, those feudal economies well might not have shrunk as much as Russia's.

Which leaves us with: for industrial economies those that had the least memory of capitalism did the worst on meeting capitalism again. Which is rather a well, yes? sort of result.

Something to strike about

It's probably been the most shambolic week in the government's history. "Pastygate" was fun, but Francis Maude has nearly sparked a fuel crisis by warning people to stock up before an impending strike by fuel lorry drivers.

I don't have much sympathy for the striking fuel drivers' demands. The regulations they want "minimum standards covering pay, hours, holiday and redundancy for fuel tanker drivers", essentially a way of entrenching existing lorry drivers in their jobs, driving up costs for consumers and creating barriers to entry for prospective drivers. It's a private dispute, and the drivers have the right to strike if they wish (although I don't think the state should stop employers from sacking them if they do so), but it's not really something the government should be getting involved with. 

On the other hand, there is a legitimate fuel that the rest of us should be getting a lot angrier about. Petrol prices are at an all-time high, and even adjusted for inflation things are tough. The immediate cause of this spike may be things like demand from China and turbulence in the Middle East, but all this is only actually hurting consumers because of the taxman. Here's a breakdown of the cost of a £1.38 litre of petrol:

Product: 47.8p

Retailer: 5p

VAT: 22.15p

Excise duty: 57.95p

In other words, around 64% of the price of petrol at the pump is down to tax. 

What's more, the only real reason that this fuel strike would cause so much disorder is because of "anti-hoarding" laws that ban people from keeping more than 10 litres of petrol in their garages. Panic-buying petrol may be stupid, but it's not surprising when people are blocked from building up a private reserve in normal times. [Update: The story this morning of a woman catching fire trying to decant petrol in her kitchen underlines this point: If private stockpiling were legal, there would be a market for safer containers and equipment that would help to avoid this kind of accident.]

Transport costs make up a signficant proportion of a lot of food and other essential goods. So fuel taxes don't just hurt people at the petrol pump, they also make up a signficant proportion of the cost of everything else we buy. If there's something worth striking about, it's that.

Proprietorial Schools Conference, April 28

The Centre for Market Reform of Education (CMRE) is a new education research and policy unit founded by ASI research fellow James Croft, the author of our outstanding 2011 report, Profit-Making Free Schools.

The purpose of the Centre is to explore and promote wider understanding of the benefits of a more diverse, competitive and entrepreneurial education sector and market-led solutions to public policy issues.

CMRE is staging a private schools conference for proprietors/headteachers, school entrepreneurs and consultants, on 28th April at Fulham Prep School. At the conference James will be presenting the next instalment of his on-going research into for-profit schooling in the UK independent sector.

The conference offers a unique opportunity for proprietors to meet and share their experiences, and to take in the perspectives of leading consultants and researchers. The full agenda, together with speaker profiles and details of how to register, may be viewed here.

Private libraries in practice

Yesterday's "pastygate" was a fun moment in England's usually-dreary political scene. Everybody was knowingly parodying themselves in "outrage" at the government removing the VAT exemption from Cornish pasties and sausage rolls — The Telegraph even set up a rolling live-blog. It was a rare display of fun self-awareness by the Westminster set. 

It reminded me of another silly story that took place around this time last year, with admittedly less self-awareness: the kerfuffle over "library privatizations". Some local councils, making spending cuts to adjust to cuts in their central government funding, decided that libraries were high up on the list of things to forgo. (This may have been politically driven, because it was mostly Labour councils shutting libraries down.) The media narrative ended up portraying this as a central government cut to libraries directly, so the whole story came to embody the supposed pain of austerity.

Eamonn Butler wrote a blogpost arguing that closing libraries was not just necessary but also desireable, which provoked an angry storm on Twitter among followers of John Prescott. Funnily enough, it became our most popular blogpost ever, with around 30,000 direct hits to it alone, and counting. Now, on the terrific Atlantic Cities blog, I read about a case of privately-run public libraries working quite well in practice:

Even the councilman who opposed the move, Bob Kellar, says he hasn't heard any complaints since the new system opened in July. "I have visited the library a couple of times and walked around. I was very impressed with what I've seen," he says. "I really haven't felt that there has been any push-back."

Indeed, it sounds like there's not much to complain about. Hours have increased. The library is now open on Sundays. There are 77 new computers, a new book collection dedicated to homeschooling parents and more children's programs. Santa Clarita is even installing a fancy laptop dispenser, where patrons can swipe their card to check out a laptop to use anywhere in the system. Visits are up; a new facility is in the works.

This is different to privatized libraries, because the city is still paying. But it's an interesting step, and one that library-lovers should pay attention to. The savings from outsourcing the running of these libraries have been significant (in the region of 20-25%) and it looks like, if anything, quality has improved.

It's not ideal: the public shouldn't be paying for libraries, which should be funded by charities or subscriptions. But it's a start.

Video: Daniel Klein on "Mere Libertarianism"

This lecture was delivered at the Adam Smith Institute last week, on Prof Klein's paper "Mere Libertarianism", which I recommend reading. You can download the slides for the talk here, and watch a longer version with questions and answers here.

Prof Klein's new book, Knowledge and Coordination: A Liberal Interpretation, is one of the best non-fiction books I've read in a very long time. You can read my review here, and buy the book here.

Yes, Virginia, there is a slippery slope

A lot of people don’t like slippery slope arguments. To people who see themselves as pragmatic, slippery slope arguments are a convenient way for ideologues to rule out small reforms. As such, people who don’t already believe in the intrinsic badness of government are usually unmoved by the idea that a little reform they like might lead to a big reform they don’t like somewhere down the line, and dismiss the case altogether.

The worst thing about FA Hayek’s “The Road to Serfdom” is the name: many people who haven’t read it (and a few who have) assume that Hayek’s argument is that a state-provided safety net will inevitably lead to totalitarianism.

But slippery slopes really do exist. One good example is tobacco control. The health lobby tends to use tobacco as a testing ground for new pieces of authoritarianism, then extends them over the other things it doesn’t like.

When we released our Plain Packaging report on the latest anti-smoking wheeze thought up by health lobbyists, we warned that, if implemented, plain packaging laws would eventually be extended to things like alcohol. This was nonsense, said the health lobby. Tobacco is unique.

Well, yesterday the government released details of its alcohol strategy inquiry. Among the areas it will look at like “raising the legal drinking age” (because that works so well in the USA?), and “reducing the strength of alcoholic beverages” (like Iceland, which prohibits the sale of beer with more than 2.25% alcohol by volume strength), was this:

• Plain packaging and marketing bans.

Ah. Looks like tobacco isn’t as unique as they assured us it was. (Dick Puddlecoat also mentioned this on his blog yesterday.)

This shouldn’t be a surprise. As soon as Australia passed its plain cigarette packaging law, the health lobby moved on to alcohol. Winning the first piece of ground allowed them to move on to the next piece of ground. We saw this in the creep of “sin taxes” from tobacco and alcohol on to fatty foods and online gambling, and it’s happening again on the packaging front.

When some people make policy proposals, they think of themselves as all-powerful autocrats, supporting precisely the policy they themselves want, and able to limit governmental power along exactly the lines they think are appropriate.

But that’s deluded. The reality is that a government big enough to tax and control the things you disapprove of is big enough to tax and control the things you approve of, too. Slippery slopes are real, and they’re dangerous. 

Economics is fun, and it was

Today we post Madsen's 20th and final one in his "Economics is Fun" series of YouTube videos.  In this one Madsen examines if Economics can be a science like Physics or Astronomy, even with all its equations and formulae. He points out that atoms and stars don't get it into their minds to behave differently because they have new information.

Madsen and Xander had a lot of fun making these videos, and Madsen got to wear a lot of snazzy T-shirts and tops!  The series seems to be popular, in that the number of views is headed towards 32,000 [we've surpassed that already! — ed], and will no doubt go well beyond that.  Madsen's book, Economics Made Simple, can be ordered here, and the full playlist of the videos based on it can be seen here. 

What's GDP got to do with it?

Bryan Caplan recently discussed the nature of GDP, and the problems with a lot of what it includes:

1. Some "output" is actually destructive.  At minimum, the national "defense" of the bad countries you think justifies the national defense of all the other countries.

2. Some "output" is wasted.  At minimum, the marginal health spending that fails to improve health.

3. Some "output" doesn't really do what consumers think it does.  At minimum, astrology. . . . 

Coercive support is often a credible symptom of pseudo-output: If the product is really so great, why won't people spend their own money on it?

Once you start passing output through these filters, the world seems full of pseudo-output.  Lots of military, health, and education spending don't pass muster.  Neither does a lot of finance.  Or legal services.  In fact, it's arguably easier to name the main categories of "output" that aren't fake.  Goods with clear physical properties quickly come to mind.

Of the "non-fake" industries, he includes physical goods like food and transport, and non-physical things like entertainment — people are not mistaken in finding something entertaining or not entertaining.

In listing some problems with GDP, Caplan might have added the silly quirk when a woman marries her butler and he starts doing the housework for free. Other things being equal, the country's GDP goes down, but that doesn't mean something has gotten worse. Caplan handily points out some of the many times when rises GDP aren't much to sing about.

Yet I still use GDP, and I guess Caplan does too. There's no better measure of "people getting stuff" that I know of, and that's the best thing I think economists can hope to measure with any degree of accuracy. What posts like Caplan's remind us is that GDP is just an imperfect way of grasping around what we're really interested in measuring.

When people — especially politicians — treat GDP as the end-goal, they've misunderstood what the point of GDP is. Once you make that misunderstanding, you start asking questions like "how do we boost GDP in a recession?", instead of wondering why GDP is shrinking in the first place, whether that contraction might be unavoidable, and what else is going on beyond the surface. And if we're asking the wrong questions, no wonder we're getting the wrong answers.

Cash for no access

As long as government rules vast parts of our lives and our businesses, with nannying and interfering and market distorting measures left, right, and centre, some will try to pull the duvet towards them, leaving others out in the cold. This weekend's cash for access story is just another in a long line of similar cases.

The allegation of cronyism exposed over the weekend illustrates the absence of a free market capitalist society in 2012 Britain.  A free market is neutral.  It treats every individual equally, without privileges: you work, you thrive.

Since time immemorial people have spotted that there is a faster route to prosperity: to take it away from others.  Once, this was merely the preserve of common thieves.  The clever ones identified a more efficient device, called government. And if this government calls itself “democratic” new heights of refinement are achieved: take away from some to give to others under the guise of “fairness”, “equality”, and morality.

Sometimes it is called redistribution, as in: rob Peter to pay Paul, in the hope that Paul will vote for the robber.  Sometimes it is called crony capitalism, as in: privatise company’s gains, but socialise the losses.  Sometimes it is called fairness, as in: do all of the above, but hide it under the moral high ground.

There is a whiff of zero sum thinking about political favours.  It is the logic of the Genghis Khan and his hordes from the steppes, who pillaged and murdered their way through large parts of Europe to enrich themselves. The idea that there is only so much to go around, and that it is therefore essential to take from others to enrich yourself.  Redistributing the pie, instead of making the pie grow for all.  Redistributing by taking away property, granting privileges, and ordering people about; instead of creating wealth by way of property rights, equality before the law, and leaving people free to pursue their dreams and aspirations as they see fit.

Trade unions are at it.  Employers’ organisations are at it.  Businesses are at it.  Collectives are at it.  And you? You pay.  Cash for no access.  Not that most people, notice, of course: a large chunk of the financing system for the redistribution of favours by politicians is carefully hidden in inclusive taxes such as VAT or stealth tax such as PAYE which take the loot away without you even touching it.

Want to stop cash for access? Take away the cause.  Prevent government from looting the nameless. Reduce the size of government.